I spent the day in Shanghai on Friday, attending a private equity conference, and giving one of the keynote speeches. Iâ€™d thought about giving my talk in Chinese, but in the end, the discretion/valor calculus was too strong in favor of using my native language. I was one of only two speakers who used English — or in my case, a kind of half-bred version of miscegenated Mandarin and English. The rest of the conference participants — including two other Westerners and dozens who participated in panels â€“ all spoke in Chinese. Â It was quite humbling, and Iâ€™m determined to use only Chinese next time around.Â
Shanghai has, so rapidly, become a truly international city. Itâ€™s one thing to say, as Shanghaiâ€™s leadership has been doing over the last decade, that Shanghai will surpass Hong Kong as Asiaâ€™s largest, most vibrant international financial center. Itâ€™s quite another to achieve this, or even make significant headway, as Shanghai has done. So many of the factors arenâ€™t under the control of government authorities. They can only create the legal and tax framework. In the end, the process is driven by individual decisions made by thousands of people, who commit to learning English and mastering the basics of global finance. All are staking their careers, at this point, on Shanghaiâ€™s future as a financial center.Â
Itâ€™s a version of what economists like to call â€œnetwork effectsâ€: the more individuals who commit to building Shanghai as a financial center, the more each benefits as the goal comes closer to fruition. On Friday, in Shanghai, I could see this process vividly displayed in front of me, of how widespread knowledge of English has become: of the 200 or so people who heard my talk, at a glance 99% were Chinese, and only a handful needed to use the translation machines.
My talk was titled â€œTrends in Private Equity: China as #1â€. Â In Chinese, itâ€™s â€œç§å‹Ÿè‚¡æƒæŠ•èµ„ï¼šä¸å›½æˆä¸ºç¬¬ä¸€â€
The basic theme was how â€œdecoupledâ€ China has become from private equity and venture capital investment in the rest of the world. Â China is in the ascendant, and will remain that way, in my opinion, for the next ten years at least. It will be years before the PE and VC industries in the US reach again the size and significance they enjoyed a year ago. China, meanwhile, is firing on all cylinders.
There are many reasons for Chinaâ€™s superior current performance and future prospects. In my talk, I focused on just a few, including principally the rise over the last decade of a large number of outstanding private SME. They are now reaching the scale to raise successfully private equity and venture capital funding.
Itâ€™s another example of positive network effects: the Chinese economy is undergoing a shift of breathtaking significance: from dependence on the public sector to reliance on the private sector, or in my shorthand, â€œfrom SOE to SMEâ€. The more successful SME there are, the more embedded this change becomes, and the more favorable overall circumstances become for newer SME to flourish.Â
Hereâ€™s one of the slides from my PPT that accompanied the talk:Â
Â—Â Global Private Equity: in trouble everywhere except China
Â—Â Recession; Credit Crisis; Over-leveraged ; closing IPO window
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Â—Â Most PE firms dormant, canâ€™t raise new equity or new debt; industry contracting
Â—Â PEå…¬å¸æ— æ³•è¿›è¡Œè‚¡æƒå’Œå€ºæƒèžèµ„ï¼Œå‡ ä¹Žå¤„äºŽä¼‘çœ çŠ¶æ€ï¼Œè¡Œä¸šèŽç¼©
Â—Â China is the exception: Â strong economic fundamentals; shift from export to domestic market;Â shift from state-owned to private sector;Â rise of world-class SME
Â—Â ä¸å›½çš„ç‹¬ç‰¹ä¹‹å¤„ï¼šå¼ºåŠ²çš„ç»æµŽå¢žé•¿ï¼Œä»Žå‡ºå£å¯¼å‘åˆ°å…³æ³¨å›½å†…å¸‚åœºçš„è½¬å˜ï¼Œç»æµŽä»Žå›½æœ‰ä¼ä¸šåˆ°ç§è¥ä¼ä¸šçš„è¿ç§»ï¼Œ å¯Œæœ‰æˆä¸ºä¸–ç•Œçº§ä¼ä¸šæ½œåŠ›çš„ä¸å°ä¼ä¸š
Â For anyone interested, the whole speech is available, in Chinese, at http://news2.eastmoney.com/090717,1117,1134998.html